Nepal currently has unprecedented opportunities for economic development along with establishing practices of good governance. These opportunities include a changing demography, the availability of cheap resources, political stability, federalism, geopolitical competition, and remittance. But this window of opportunities will last only for the next 10 to 15 years. Should we fail to capitalise on it, Nepal may once again be trapped in a cycle of underdevelopment, misgovernance, and instability. The government seems intent on investing heavily in infrastructure development and is adopting a populist plank to appease the people. Regrettably, it appears to lack the capacity, vision, and the willingness to deliver accordingly.

Another troubling trend is donor complicity. Unable to stand up against the government, some donors and multilateral institutions are becoming complicit in the ruling regime's populist and corrupt initiatives.

The prime minister’s strategy

The recent cabinet reshuffle indicates a clear strategy adopted by the prime minister. He has chosen to consolidate support from within the former UML rather than give ground to either Pushpa Kamal Dahal or Samajbadi Party Nepal. Oli's recent political settlement, whereby Dahal is now the executive chair of the party, is a temporary measure. It will have little meaning unless Dahal can use his position to influence the upcoming general convention.

Prime Minister Oli's primary tussle for political control is with Pushpa Kamal Dahal. Their clash is frequently reflected in the media outlets controlled by the two leaders. Senior leaders with inside information agree that their primary conflict is over mechanisms for the extraction of financial resources and sharing the spoils of corruption. As several incidents in the past few years have shown, the president's office has been dragged into this competition and is a critical part of any political settlement.

While the prime minister has shown interest in taking action against corruption and wrongdoings by political competitors, he continues to protect and ignore corrupt actors close to him. Such a strategy has at least three direct implications. First, corruption and impunity will continue and grow. Second, a limited number of people showing direct allegiance to the prime minister will have access to extractive mechanisms, integrating several smaller cliques into a singular consolidated kleptocratic network. Third, the political elites who are excluded will wait for opportunities to weaken and attack the ruling regime, increasing the potential for political instability.

People in Nepal normally tend to equate infrastructure with development. However, investment in infrastructure may not necessarily lead to economic development. This cannot be overstated. The construction of Pokhara airport was driven by corruption as well as populism whipped up by the corrupt actors. The purchase of two widebody aircraft by Nepal Airlines was driven by deliberate policy corruption and a procurement process riddled with double-dealing and deception. The decision-makers knew that the purchase of the two widebody aircraft would put Nepal Airlines under added financial pressure and cause massive losses. These examples show that corruption and populism can distort development policies and do more harm than good, at least in an economic sense.

Populist programs and donor abetment

Most of the donors have pulled back their programming for democracy, good governance and rule of law and are eager to work together through the government. A more sinister issue is the complicity of institutions like ADB and the World Bank in promoting corruption and politically partisan and populist initiatives.

One of the institutions that have come up to represent the donors is the World Bank. In September this year, the World Bank announced the $120 million Youth Employment Transformation Initiative aligned with the Prime Minister's Employment Programme.

According to experts and officials with whom I have talked to, the employment programme and technical education programmes run with the World Bank’s loans have displayed irregularities. Experts closely associated with the programme say that it is primarily a populist initiative designed to extend Oli's political support among the masses. They also argue that the programme is built on corruption—the costs are inflated and have led to the creation of an elaborate setting designed to siphon off more than 60 percent of the expenditure without spending them on the targeted activities.

Similarly, ADB's failure to extract accountability from Melamchi contractors in maintaining environmental standards and control dust pollution directly impacted the lives of hundreds of thousands of people in the Kathmandu Valley. ADB’s involvement in corruption-ridden projects such as Melamchi raises questions about the institution’s linkages to corrupt practices.

A common refrain among the donors is that corruption has existed in Nepal before and it will continue to exist in the future. They may be right, to a certain extent. But this view has dangerous consequences.

Nepal's successful transition depends on the success of economic development initiatives and federalism. At present, the kleptocratic system in the country is extending its reach to the provincial and local levels. If it prevails, the kleptocracy will prevent Nepal from cashing in on the opportunities for economic development and corrode Nepal's federal system. Ignoring corruption can also allow certain segments of the donors and multilateral institutions to collude with the spoilers in order to fulfil their own incentives without needing to be accountable to the Nepali people.

Greater scrutiny by civil society can lead to greater discontent with the donors and multilateral institutions. They are already unpopular with the ‘nationalists’ and the government. It would be unfortunate if they were to become unpopular among society at large.

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